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D I V I S I O N OF I N T E R N A T I O N A L F I N A N C E B O A R D OF G O V E R N O R * FEDERAL. RESERVE SYSTEM December 7» 1962. __ V&2 ^CAPITAL MARKET DEVELOPMENTS ABROAD \T^ ^ r„ \ i a Nine Charts on Financial Markets Abroad I. Japan: Money and Capital Markets in October For the second time in a month, the Bank of Japan on November 27 lowered its basic discount rate by 0.365 percentage points to 6„57 per cent. Earlier on October 27 the rate was cut from 7,3 to 6,935 per cent and reserve requirements were lowered. Both reductions represented an easing of the tight money policy which had been in effect since July and September of 1961o While the October rate reduction was justified by evidence that the balance of payments problem had been solved, it would appear that outside pressure rather than a new reading of the economic trends was the decisive factor behind the November 27 reduction„ The trade deficit, seasonally adjusted, took a turn for the worse in October as exports fell and imports increased. Wholesale prices also continued their uptrend in October from a June 1962 low. Other factors that indicate some possible pressure on the balance of payments in the coming months include: a heavy schedule of debt servicing as Japan repays the special oneyear credits obtained from U.So banks between November 1961 and July 1962; the recent liberalization of imports on October 1, 1962; and encouragement from the IMF to further liberalize imports * On November 17 * the head of the IMF consultations team to Japan stated that Japan's international payments balance had improved to such a point that she was no longer justified in maintaining exchange controls for balance of payments reasons. Japan is planning to issue new securities in the US in December totaling $29 million. Additional issues totaling $35 million are at present planned for the first quarter of 1963. Money Market. Money market conditions eased in October as various expansionary developments more than offset a contraction in Bank of Japan credit. On the contractionary side, Bank of Japan loans and discounts declined ¥150 million and bank notes in circulation rose ¥20 million. These developments were more than offset by net Treasury disbursement of ¥209 billion and a rise in Bank of Japan holdings of government bonds of ¥152 billion. Reflecting this easing, call loan rates declined in the money market in October. OFFICIAL USE ONLY DECONTROLLED AFTER SIX MONTHS OFFICIAL USE ONLY , — 2 — Interest rates. The general level of interest rates is expected to decline in response to Bie two recent cuts in the Bank of Japan r s basic discount rate late in October and November. Commercial bank rates were lowered on October 31 in correspondence with the October 27 cut in the discount rate and a similar action in late November or early December is anticipated. The average rate for bank loans and discounts continued to rise gradually through August. From a level of 8.23 per cent in July, the rate advanced to 8 „2li -per cent in August. (See table below) * A leveling off or decline in the rate is likely in October or November. In the call loan market 9 the rate for loans callable at a day's notice fell to 10,22 per cent in October from a level of 11.68 per cent in August and September 0 Average Monthly Interest Rates on Bank Loans and Discounts March June September December 1/ 1959 I960 1961 1962 8.18 8.08 8.06 8.11 8.21 8.22 8.1k 8.08 7.92 7.88 8.00 8.20 8.22 8.23 8.2k August e Bank loans and discounts. Bank credit rose 1.7 per cent in September compared to a rise of l.d per cent a year earlier. The increase in loans and security holdings was less than a year earlier y but bills discounted rose at a faster pace* Deposits increased 5>.l per cent in September against a rise of 3.8 per cent a year earlier. During the third quarter of this year 9 bank credit expanded 3-3 per cent compared to luh per cent a year earlier. As indicated in the table below, the rise in all assets was at a slower pace than a year earlier* Deposits picked up3 however5 rising 6.U per cent in the quarter against 3,8 per cent a year earlier. OFFICIAL USE ONLY OFFICIAL USE ONLY Commercial Banks: ~~ Quarterly Changes in Deposits and Principal Assets (In billions of yen) M A I N 1960 Deposits Per cent Change Loans + 2 h9 + 96 +506 +607 3oh 1.3 6.5 7.3 +176 +167 + 2hk +3U7 3.8 3.5 ko9 6.7 + 5k + 87 +172 +185 5.7 1.8 3o8 1.3 +326 +206 +216 + 232 5.9 17 +169 +359 +130 3.5 3.6 3.7 + 18 +133 +#6 I II III +128 + 61 +678 1.2 0.6 6.U +181 + 223 I II in IV 1961 1 11 HI 1962 +502 - 3- + 256 Per cent Change 3.9 2.7 3.2 Bills Discounted A S S E T S " Per cent Change Securities Per cent Change 7.5 + 78 + 75 + 35 +127 6.5 5.8 2.6 9.1 +103 +IOL + U3 +122 6.8 60k + 220 1.8 U.9 7.3 7.2 + 1U o.U - 6U +258 + la -3ok liul +108 +213 2.5 3.9 7.5 3.3 6.3 2.5 6.9 The proportion of bank loans and discounts extended for purchases of equipment fell from 17.L per cent in August to 17.2 per cent in September, the same level as in January-February of this year. Bond marketo New issues of industrial debentures rose sharply in September and helped boost the total amount of new bond and debenture issues to ¥109 billion against ¥91 billion a month earlier. From a range of ¥10-15 billion since October of 1961, new issues of industrial debentures rose to ¥22 billion in September. New issues of public corporate debentures rose to ¥23 billion in August and new issues of bank debentures were relatively unchanged. Average yields on most bonds and debentures remained unchanged in September from the levels since the first of the year. Yields on industrial bonds, however, rose slightly during the month„ Stock market. Except for a brief rally in the first eight days of the month, the stock market generally eased during October and on the 29th reached the lowest level in two years„ This represented a decline of 2k per cent from the year's high on February lit. In November, the market rose substantially and by December 3 had recovered 65 per cent of the ground lost between February and the end of October. An important factor in the recent market recovery is believed to have been the extension of special loans to the major security companies. In mid- ~ October, the Ministry of Finance authorized a loan of ¥6 billion from various financial institutions to the four major securities companies, and on November 8 it was announced that'lb leading Japanese banks had agreed to supply a similar , number of investment trusts with loans totaling ¥9 billion. OFFICIAL USE ONLY OFFICIAL USE ONLY - b - Dow Jones Average of 225 Stocks Tokyo Stock Exchange Sept. 26 ¥1,297 Oct.. 3 10 17 2k 1,2L0 1,302 1,2L6 l,2Uii 31 1,260 Nov. Dec. 7 lb 21 28 31,372 1,113 1,393 1,LL0 3 1,157 1961 High Low ¥1,830 ¥1,250 1962 High Low ¥1,590 -¥1,216 Foreign trade. The seasonally adjusted trade deficit, which narrowed sharply during the January-September period this year, widened substantially in October to $69 million or $828 million at an annual rate. This compares with a third quarter trade deficit computed at an annual rate of $156 million and a peak deficit in the fourth quarter of last year of $2,181; million. As indicated in the table below, exports fell $2U million in October to $lt25 million and imports rose $ 5 5 million to $L9b million. With the second reduction in the Bank of Japan's discount rate on November 27, encouragement from the IMF to further liberalize imports, and a heavy schedule of debt repayment, some pressure on the balance of payments is expected in the coming months. The seasonally adjusted trade figures (monthly, or monthly averages, on a customs basis in millions of dollars) in the table below are based on seasonal adjustment factors computed by the Bank of Japan under the U.S. census method. Exports Year Inports Trade Balance 338 37U - 36 Year I II III IV 353 3h3 351 357 36U U8U 127 U6U 506 5L6 -131 - 8U -113 -1U9 -182 I January February March II April May June III July August September October 371 35L 382 378 192 k97 U98 U8l U66 182 U77 135 khl 153 UU7 139 U9U -121 > -1L3 -116 -103 - 57 -121 - 30 - 17 - 13 - 23 - 25 + 10 - 69 U09 361 Wt7 U18 Wb U30 122 hh9 L25 OFFICIAL USE ONLY - 5 - OFFICIAL USE ONLY Exchange reserves and capital flows. In November Japan repaid $50 million of the $200 million borrowed from three US banks between November 1961 and February 1962. As a result of this repayment, reserves fell $12 million from $1,805 million at the end of October to $1,793 million at the end of November. Japan is scheduled to repay $50 million a month of the remaining $150 million between December 1962 and February 1963. Between February and July 1963, Japan is scheduled to repay $125 million borrowed earlier this year from seven U.S. banks. Japanese reserves had risen $85 million in October to a level of $1,805 million. This reflected a substantial surplus on current account and a net inflow of both long-term and short-term capital. The October gain brought reserves to a level $319 million above the cyclical low last December. The balance of payments, as measured on an exchange transactions basis, continued to improve in October as the surplus on current account, not seasonally adjusted, rose to $70 million against $62 million in September. Net long-term capital receipts fell to $13 million in contrast to the unusually high figure of $79 million in September. Net short-term receipts were $22 million in October in contrast to a net short-term outflow of $87 million in September. With net capital receipts of $35 million and a net outflow under errors and omissions of $20 million in October, the over-all balance registered a surplus of $85 million. Japanese short-term liabilities to the United States declined $53 million in September to a level of $1,683 million. As indicated in the table below, this restores the total liabilities to the level prevailing last April and May. The rise in liabilities during the June-August period reflects the inclusion of data from agencies of Japanese banks in San Francisco that had not previously been reporting. ' Jan. Feb. Mar. Apr. May June a/ 19 59 I960 1961 1962 168 175 20U 22U 2U2 260 362 372 It20 U56 U88 U97 875 952 1,069 1,159 1,196 1,272 1,515 1,605 1,698 1,688 1,678 1,728 July Aug. Sept. Oct. Nov. Dec. 1959 I960 1961 1962 256 269 262 262 275 32U 586 628 660 693 711 8Cf6 1,31*1 1,335 1,288 1,281 1,292 i,UU5 1,731 a/1,736 a/1,683 Preliminary estimate. Note: Data since June 1962 include reports of certain banks not previously included«, The inclusion of these banks increased the reported figure in June 1962 by $U8-million. OFFICIAL USE ONLY OFFICIAL .USE ONLY - 6 - In December 1962 the Tokyo Shibaura Electric Company expects to issue privately in the U.S. $20 million in 15-year, 6^- per cent, convertible debentures and the Honda Motor Company plans to offer publicly $9 million in stock in.the form of American depository receipts= During the first quarter of 1963, Mitsubishi Electric Company and the Japan Development Bank plan to issue publicly $15 and $20 million in bonds, respectively. Foreign exchange. A strengthening of the exchange rate for the yen in the forward market in October narrowed the forward discount from l.Uli per cent during the first 20 days of the month to ,89 per cent during the last three days of the month and the first ten days of November. Between November 12-15 the forward rate weakened and the forward discount rose to 1.06 per cent. (See table below)« The exchange rate in the spot market remained at the official support level throughout October and the first half of November. Customer's Date . T.T. Exchange Rates of Bank of Tokyo in Tokyo Yen-dollar spot middle rate / Three-month forward middle rate Forward discount in per cent per annum Sept. 28 358.90 360.20 l.Uii- Octe 5 12 1926 31 358.90 358.90 358.90 358.90 358.90 360.20 360.20 360.20 359.75 359o70 l.liU l.hk l.UU .95 Nov. 2 9 •15 358.90 358.90 358.90 359.70 359.70 359.^5 .89 .89 1.06 Asia, Africa and Latin America Section OFFICIAL USE ONLY - 7 IIo India; Money and Capital Markets During 1962 In mid-summer 3 prior to the Chinese invasion, the Indian authorities had taken steps to restrict credit availabilities and had begun to explore means of mobilizing the country 5 s private gold hoards which has been roughly estimated z by the Reserve Bank at $U billion. Since the attack, they have offered a wider range of securities to the public, both against cash and against gold, at rates of interest above those previously in effect. They have also taken further steps to divert credit availabilities to specified ''essential" purposes* Both the stock and gold markets declined sharply in reaction to the attack. In July, the Indian authorities undertook a number of measures to tighten credit. The Reserve Bank added to the bank rate (L per cent) and two penalty rates (5» and 6 per cent) a third penalty rate of 6-1/2 per cent and lowered the ceilings at which each penalty rate applied= In effect, the average rate paid by the banks was raised by about 1/2 per cent. Higher interest rates were offered on new issues of government securities and the rate on post office savings deposits was raised from 2.5 to 3.0 per cent, the rate now paid by most commercial banks. In mid-September, new measures to restrict bank credit expansion were announced. The overall reserve requirements of the banks were changed as follows (as per cent of deposits): Balances at Reserve Bank Government Securities Before for demand 2% for time 20% After 3% for all deposits 2$% After the Chinese invasion on October 20, the authorities took additional steps on two main lines. To control credit, the following steps were taken: November 1. The Reserve Bank placed an absolute limit on borrowings by each commercial bank, instead of depending solely on the July schedule of graduated interest charges. November 8. Conference of leading commercial banks, convened. by the Reserve Bank, agreed to shift credits from defined nonessential purposes to defense, essential consumer goods and export financing. November 10. As a seasonal adjustment, the Reserve Bank agreed to make loans above the credit limits announced on November 1 for a temporary period of six weeks. November 16 „ Foreign banks operating in India and Indian banks operating abroad were advised by the Reserve Bank to bring foreign funds to India to the maximum possible extent. OFFICIAL USE ONLY OFFICIAL USE ONLY - 8 - To mobilize private gold hoards on a voluntary basis, the Indian authorities took two steps. They encouraged private contribution of gold and gold ornaments to the defense effort and they also offered for the first time in India 1 s history a 6-1/2 per cent gold bond. Rumors about possible confiscation of gold hoards under new legislation passed in August caused gold prices to fall even before the Chinese attack„ Following the outbreak of hostilities, prices fell nearly 18 per cent on the Bombay gold market in the first four weeks„ On November lL, forward trading in gold was banned c Stock prices also fell sharply after October 20* As an emergency measure <, the exchanges in Bombay and Ahmedabad were closed for one week; the other five Indian exchanges continued trading although minimum prices on individual stocks were in effect in at least three of these markets. Minimum prices also were put into effect in the two closed exchanges when they reopened. These financial developments took place within what is called the "organized sector" of the Indian financial structure which consists of westerntype commercial and cooperative banks* The large "unorganized sector" in India comprises the individuals and family firms who act as traditional money-lenders in rural areas and as deposit-receivers and money-lenders in urban areas. The indigeneous bankers and the money-lenders play an important role in financing the requirements of agriculture, internal trade and small industriese The link between the two sectors has been growing, encouraged by the Reserve Bank, which is-attempting to expand its control over the unorganized sector« Money market. Despite increased restrictions on credit, the rate for day-to-day money has so far been below the 1961 levels„ (See Table 1). Money rates follow a strong seasonal pattern and are highest between November and April when crops are harvested= Inter-bank call money is the principal short term money instrument in India0 Treasury bills are held mainly by the Reserve Bank of India, and there is no active market for them, • Table 1 Inter-bank Call Money Rates in Bombay (in per cent per annum) Average of months I 1% III Oct. IV a/ 1961 1962 $.23 L.86 3.19 L.23 lull L.72 3.# 2.82 3.0$ &/ average of Fridays OFFICIAL USE ONLY OFFICIAL USE ONLY - 9 - Bond market. In accordance with the usual practice of floating' loans only between May and October ,(the slack season when the banks have funds available to purchase bonds), the government announced three new issues in July at somewhat higher interest rates than were prevailing in the market at that time as the following yields show (in per cent per annum): New Bond Yield Market Yield 6-year bond 3.90 3.78 10-year bond Ucio 3.98 23-year bond U.5 These are largely held by financial institutions, by State Governments and by the Reserve Bank. Financial institutions are compelled by law to invest a portion of their funds in Government bonds; recent changes in the requirements for the commercial banks were set forth in the summary of this paper. As a rule, the joint-stock companies are not allowed to raise capital during the period when the Central and State Governments are expected to approach the market. In November, after the Chinese attack, the following new bonds, which are designed to appeal particularly to individual purchasers, were offered for public subscriptions Security Interest Rate Maturity (years) U-i/U 10 Defense Deposit Certif. it-l/2 10 12 National Defense Bonds 1I-3A Premium Prize Bonds —— 5 Units of Issue (in Rs.; 100 Special Feature Interest semi-annual 50 5 to 25,000 Free of income tax; holdings limited 5 end 100 Two drawings for every Rs. 10 million worth of bonds sold. The interest rates on former Deposit Certificates were 1/2 per cent below those of the new series. Gold marketo The price of gold climbed in India in the first eight months of 1962. On August 31, the price reached $8U.85 per fine ounce, the highest level (in terms of U.S. dollars) in effect since the devaluation of the rupee in September 19L9. Thereafter the price declined: it fell slightly in September and more rapidly during October and early November» The price of $6iu85 per ounce on November 23 was the lowest price in over three years. (See Table 2). OFFICIAL USE ONLY OFFICIAL USE ONLY Table 2 - 10 - Price of Gold Bullion in Bombay (in dollars per fine o u n c e ) j y Average of period 1961 I 78.61 11 III IT 78.51 80.01 79.95 Oct. 5 12 19 26 78.12 76.06 75.91 78.66 1962 I II July Aug. Sept.b/ 78.38 80.60 82.35 82.83 81.-20 Selected dates 1962 Nov. 2 9 16 23 E/ average spot quotation, converted into dollars at par value 5/ average of Fridays 77.51 71.17 68.66 61.85 The fall in gold prices from the August highs followed Parliamentary approval of legislation providing for additional controls over the gold trade. At the time, the Reserve Bank sent notices to the bullion associations requesting information on the gold trade„ As a result, rumors began to circulate that the Government was about to freeze or confiscate private holdings of gold and individuals began to withdraw gold bars and ornaments from safe deposit boxes and-to exchange gold for rupees and diamonds„ This selling of gold accelerated after the Chinese invasion because of fears that gold holdings above a certain level would be confiscated. The authorities then announced that, effective November 12, gold bonds would be issued for 15 years at a 6.5 per cent interest rate. The gold was to be valued at the world price of Rs 53.58 per 10 grams ($35 per ounce) or less than half the market quotation in Bombay. The bonds were to be redeemed in rupees. Thus, the higher interest rate does not compensate purchasers for the capital loss on the market value of gold. Because the bonds do not include a gold guarantee, the purchaser is not protected against a devaluation of the rupee. Despite these economic disadvantages, the Government hopes that the patriotism aroused by the Chinese conflict will encourage purchases of the bonds. The Government has also established a National Defense Fund to encourage the voluntary contribution of gold and gold ornaments. However, most contributions are reported to be in the form of cash. OFFICIAL USE ONLY OFFICIAL USE ONLY - 1 1 - The higher prices on gold in Indian markets reflect the regard among the population of gold as a form of investment, a means of retaining savings, a hedge against inflation, a way of hiding profits from the tax collector as well as the attractiveness of gold for social purposes. The Reserve Bank has estimated that total private hoards in the country might come to as much as $L billion. The Indian gold price has been double world levels (at the official rate of exchange), largely because restrictions have limited the flow of gold from abroad and the government has been buying all the newly mined gold. Stock market«, Indian stock prices reached a post-war peak in May and thereafter drifted downward in line with the trend of stock prices in other countries. Since the Chinese invasion the decline has accelerated. By November 10, the index average was quoted about 6 per cent below the October 13 level and about lit per cent below the May peak, (See Table 3)» Table 3 Price Index of Variable Dividend Industrial Securities: All India — ~~ ' (15?5 2_53 = ioo) Average of period 1961 I II III IV 171 * 2 181.2 179 o 7 I8iu0 1962 I II July Aug. Sept. a/ 190.0 192.6 18L.0 187.0 I8iu0 Selected dates 1962 ~™ a/ E/ c/ Oct. 6 13 20 27 181.3 180.3 b/ 179.7 17U.it Nov. 3 10 171.8 168.8 c/ Average of Fridays Excludes the Calcutta market which was closed for the week Provisional On November E>, after a period of very heavy selling, the stock exchange in Bombay (and also Ahmedbad) was closed for one week. When it re-opened on November 12, there were restrictions on new purchases and sales, and floor prices were set for the stocks. Earlier, the stock exchanges at Calcutta, Madras and Delhi had fixed minimum prices, with the result that trading was negligible, due to a lack of buyers, and price quotations were nominal. At present, more than 2,000 securities are listed on the Indian exchanges with a face value of Rs. 13 billion or $2 billion at the official excharige rate. Despite the recent expansion of the market for company securities in India, medium-and large-scale private firms still depend mostly on internal financial resources. OFFICIAL USE ONLY OFFICIAL USE ONLY -12- Banking developments. Between October 1961 and October 1962, deposits increased by 13 per cent. (See Table h). Total bank credit has risen roughly with the increase in deposits. However, the banks' holdings of government securities have not expanded proportionately. In October 1962, they were 3U.7 per cent of total bank deposits, well in excess of the new 25 per cent statutory minimum now in effect. Table U Scheduled Banks: Changes in Deposits and Principal Assets (in billions of rupees - last Friday of period) " Deposits T • II III Oct. IV 17.U6 17.76 17.99 18.11 18.25 I II III Oct, 19.17 20.12 20.35 20.1:7 Quarterly per cent change 1.7 1.3 - l.U S.o 5-0 - i.i Principal Assets (as per cent of deposits) Total Cash and balInvestments bank ances with in gov't. credit securities Reserve Bank 72.L8 71.66 67.78 67.71 69.9k 30.68 30.91 31.30 35.51 31.80 6.U0 8.01 6oli8 7.29 8.30 73.69 70.56 67.72 67.65 31.50 30.18 33.90 3U.71 6.U5 7.37 6.21 6o2h " On November 1, the Reserve Bank of India reduced its ceilings for loans to commercial banks and hardened its lending rates. Each bank will normally not be permitted to borrow funds from the Reserve Bank beyond the limit of 100 per cent of its statutory reserve balances at the Reserve Bank, In exceptional circumstances, the Reserve Bank may grant credits above this limit, at an as yet unspecified penal rate of interest (instead of the previous 6^ per cent). On November 10, the Reserve Bank eased this regulation. For a period of six weeks, it agreed to lend to commercial banks at 6? per cent amounts in excess of the 100 per cent limit, up to the maximum amount borrowed by each bank from the Reserve Bank in the 1961-62 busy season (November-April)«, India has 66 domestic and 15 foreign scheduled banks (that is, banks with specified minimum paid-up capital and reserves), but the State-owned Bank of India accounts for nearly 30 per cent of deposits in these banks. (The 212 non-scheduled banks account for only 2 per cent of total commercial bank deposits). Most of the banks provide short-term credits in the form of loans, overdrafts and cash credits, which are often rolled over from one period to another. Bills purchased and discounted account for only 15 per cent of total bank credit. OFFICIAL USE ONLY OFFICIAL USE ONLY - 13 - Exchange reserves* Indian foreign exchange reserves have been declining since the end of 1961 and at the end of October were valued at $hh2 million,only $22 million above the Rs. 2 billion ($li20 million) which the Reserve Bank is required to hold as currency cover (57«5 per cent of which must be held in gold). (See Table 5)• The total decline during 1962 (excluding a drawing of $25 million from the IMF on July 27) has been $lU6 million. The increases shown in Table 5 for 1961 were mainly the result of a net drawing from the Fund of $122.5 million in July 1961. ,, Table 5 India: International Monetary Reserves (in millions of dollars - last Friday of period) Gold •1961 1962 I II III IV I II III Oct. Foreign Exchange Total 2li7 2U7 2li7 2ll7 286 239 272 316 533^ W 520 563 21*7 2lt7 2li7 21*72li7 272 20U 197 191 520 U52 hk$ hh2 Change from preceding period -kl +3h +L3 -2i3 -68 - 7 -3 Asia, Africa and Latin America Section., II. Chart Chart Chart Chart Chart Chart Chart Chart Nine Charts on Financial Markets Abroad Interest Arbitrages United States/Canada Interest Arbitrage9 New York/London Interest Arbitrage for German Commercial Banks Interest Arbitrages Frankfurt/London Short-term Interest Rates Long-term Bond Yields Industrial Stock Indices Spot Exchange Rates - Major Currencies Against U.S. Dollar Chart 9 - 3-month Forward Exchange Rates 1 2 3 U 5 6 7 8 - OFFICIAL USE ONLY I N T E R E S T A R B I T R A G E , U N I T E D STATES / CANADA T H R E E - M O N T H T R E A S U R Y BILL RATES RATE D I F F E R E N T I A L A N D F O R W A R D C A N A D I A N D O L L A R S F 1 E A D IN F A V O R O f C A N A D A + A / f.S. RATE DIFFERENTIAL W I T H F O R W A R D E X C H A N G E COVER I NIT INCENTIVE IN f A V O I Of C A N A D A + J mo j $! INTEREST A R B I T R A G E , N E W YORK/LONDON Friday figures Per cent per annum 3 - M O N T H TREASURY BILL RATES RATE D I F F E R E N T I A L A N D j - 3 - M O N T H FORWARD STERLING 1 T 1 • ! RAT E DIP FERE N T I A L . W I T II ~ F O F ( W A R D EXC: H A N GE C<DVER V"V> V * V IN F A V O R (JF L O N E / - IN 1A V O I 1 1 1 e I I J 1 1 $ 1 1 D 1 1 M 1959 T I J- 1 1 S 1960 1 1 D - NEW LOBA I | I 1 * I I I | J 1961 S D 1 1 # 1 1 J 1 1 HtF S 1 1 D INTEREST ARBITRAGE FOR GERMAN COMMERCIAL BANKS Friday ligur«» 3-MONTH TREASURY . EURODOLLAR BI LIS, INTERBA NK LEND IN G RATE AND D E P O S IT R A T E S RATE DIFFERENTIAL AND RATE 1 I D I F F E R E DS I T I A L W I T H FORWARD I .. FORWARD DEUTSCHE MARK - I I EXCHANGE C O V E Ii I I I , IN F A V O R O F F R A N K F U R T ( + ) 3 A * , M I i v - S — ; i I C J P ' - ^ I I I 3 T R E A S U R Y IIILS I I 1 S , , 1 D M mo T S fiti Note: Special forward rat* available lo German commercial banks. ' 1 , , D " i. lieT 5 6 INTEREST ARBITRAGE, F R A N K F U R T / L O N D O N 3 - M O N T H TREASURY BILLS A N D I N T E R B A N K L E N D I N G RATES \ A G E R M A N I N T E R B A N K 1/ ,y\v RATE D I F F E R E N T I A L A N D | 3 - M O N T H FORWARD STERLING G E R M A N T R E A S U R Y llllS V — / — v GERMAN INTERBANK RATE D I F F E R E N T I A L W I T H F O R W A R D E X C H A N G E C O V E R G E R M A N T R E A S U R Y BILLS c hort . 5 ^ SHORT-TERM INTEREST RATES JAPAN y> 1 ft w h \ f i \ > ¥ U-\ / r / V ! i a ^ V A SWITZIl 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 II 1*5# 1151 ii i i i i i i ii i 1U0 1 II 1 1 1 1 1 1 1 1 M I N I 1H1 •)t* 3-month Ireosury bill roles I of oil countries e»cepl | Jo pan (l-monlh interbank depoiit role) and Switzerland (3-monlh deposit rale) 3-month role lor U S. dollar deposits in London 1 II 1 1 19*2 L O N G - T E R M B O N D YIELDS ./V 1958 1959 1960 1961 1962 19 5 8 = 1 0 0 Ratio stale - — | 450. 400 SPOT E X C H A N G E RATES - M A J O R CURRENCIES A G A I N S T U.S. DOLLAR ^ A b o v e p a r_ A b o v •_ p a r "i960 3 - M O N T H F O R W A R D E X C H A N G E RATES 1 A G A I N S T U. S . ' D O L L A R S GERMAN MARK P R E M I U M 4- - SWISS F R A N C > v ' n ^ x ' ' i ' P U M P STERLING , , DISCOUNT1 ( A G A I N S T P O U N D STERLING - L O N D O N v\ A G A I N S T P O U N D STERL N G - L O N D O N IRINCH HtANC /, 1 1 1 1 1 1 1 i i 1 1
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